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Andaya dares Senate to allow Palace to veto ‘flawed’ budget

HOUSE APPROPRIATIONS committee chair Rolando G. Andaya, Jr. of the 1st district of Camarines Sur on Sunday told Senators to let President Rodrigo R. Duterte decide on whether to veto provisions of the 2019 General Appropriations Bill (GAB) amid alleged “manipulation” of the budget after it was approved by both chambers.
“If the senators really feel that the budget we have ratified is constitutionally infirm and legally flawed, then they can tell the President what specific portions and provisions to veto. And we will respect the presidential veto,” Mr. Andaya said in a statement.
“That is his prerogative. Don’t take that right away from him. If the contested appropriations represent 2% of the national budget, then why should it jeopardize the uncontested 98%? Why hostage the national budget over unfounded and unreasonable fear?”
Senate President Vicente C. Sotto III reported that the Legislative Budget Research and Monitoring Office found P79 billion to have been realigned from the ratified P3.757-trillion national budget.
Senator Panfilo M. Lacson last week also flagged the delayed transmittal of the budget bill to the Office of the President, which he said was due to manipulation of the Department of Health’s allocations. Both Houses ratified the 2019 GAB on Feb. 8.
Mr. Andaya has said that the House contingent “itemized” lump-sum funds for transparency.
“The proposed 2019 GAA (General Appropriations Act), when ratified by the Senate and the House of Representatives, contained lump-sum funds that need to be further itemized by both Houses. That was the agreement at the conclusion of the meetings of the Bicameral Conference Committee,” he said in the same statement.
“We will print the 2019 GAA so the people would know where the projects and programs that will be implemented this year from health to education to agriculture to infrastructure would go.”
Mr. Andaya last week said the bill will be ready to be transmitted for the signing of the President by March 10 or 11. Senator Sotto, however, still has reservations about signing the enrolled copy.
“I’ll wait for the copy that (the) HoR will send. If they made internal realignments other than what we approved (and) ratified in plenary then I will not sign it,” he told BusinessWorld in a phone message on Sunday. — Charmaine A. Tadalan

DoLE seeking tripartite deal for ECoP’s regularization scheme

LABOR Secretary Silvestre H. Bello III said his department is still in negotiations to get unions to sign off on the delayed voluntary regularization plan proposed by the Employers Confederation of the Philippines (ECoP), in the hope that the plan will become a tripartite deal.
In an interview last week, Mr. Bello said the Department of Labor and Employment (DoLE) remains in talks with labor groups on the National Voluntary Regularization Program agreement, under which employers undertake to grant regular status to hundreds of thousands of workers.
“Probably this time this could be a tripartite MoU (memorandum of understanding),” Mr. Bello said.
ECoP President Sergio R. Ortiz-Luis Jr. said last month that the MoU signing was only postponed and is hopeful that it will still go ahead.
The three-year voluntary regularization plan between DoLE and ECoP supposed to begin last February, with the goal of regularizing 220,000 workers from ECoP member companies.
Nagkaisa Labor Coalition and Kilusang Mayo Uno said last month that the program granting ECoP a three-year labor inspection moratorium represented a dereliction of duty on the part of the Labor Secretary, exposing him to possible legal action. Mr. Bello has said that the threat of prosecution was one of the reasons for delaying the signing.
Mr. Bello said the labor sector misunderstood the moratorium component, adding: “The inspection will be waived unless there is a complaint. If there is a complaint we will still conduct the inspection.” He said he hopes the plan will go ahead if the labor groups can be persuaded to agree to the deal.
“Because of that MoU, you are assured that we will regularize not less than 200,000… It would be a waste (if the plan does not go ahead),” he said, adding that DoLE continues to ask legislators to pass the Security of Tenure (SoT) Bill.
The SoT Bill, which was certified as urgent by President Rodrigo R. Duterte last year, is still undergoing second reading at the Senate. — Gillian M. Cortez

Gaps in gender pay, employment proving difficult to close — ILO

WAGE and employment inequality between men and women remains an issue globally, according to a report from the International Labor Organization (ILO).
In a report, “A quantum leap for gender equality: For a better future of work for all,” the ILO found that gender gaps at work still have a long way to go to resolve. Only 45.3% of women globally have work compared to 71.4% of men. In 2018, 2.0 billion men were employed globally, against 1.3 billion for women.
The global gender employment gap has only decreased by 2 percentage points over the past 27 years, it said.
“The gender gaps with respect to key labor market indicators have not narrowed in any meaningful way for over 20 years. This situation should give rise to concern. Unless the present trajectory is changed, unless policy choices are made that put gender equality at their core, the situation is likely to deteriorate further as work becomes more fragmented and the future remains uncertain,” the report said.
Growth in the share of female wage earners have increased in the past 27 years by 10 percentage points, yet ILO reports there is still no decrease in the gap of average wages earned between men and women.
“Currently, the gender pay gap is still 18.8% throughout the world, ranging from 12.6% in low-income countries to 20.9% in upper middle-income countries,” ILO said, adding that the gender pay gap still remains largely unexplained globally.
Opportunities to be hired are also lower in women. Women are also less likely to be employed in managerial positions. Only 27.1% of managers and leaders globally are women, unchanged since 1991. More women are considered more qualified than men in managerial positions with 44.3% of female managers having an advanced degree against 38.3% for their male counterparts.
“Globally, women are estimated to have lower chances of being employed than men and are more likely to be at the bottom of the professional ladder,” ILO said. It did add, however, that women in managerial positions reach the top faster than men.
Unpaid care work also plays a role in why women are not part of the workforce with ILO reporting 606 million women do care work full-time as opposed to only 41 million men. On average, women spend four hours and 25 minutes a day doing unpaid care work while men spend only one hour and 23 minutes.
From 1997 and 2012, ILO said that women’s time devoted to unpaid care work and household work decreased by 15 minutes a day, compared to the time spent by men which increased by eight minutes. At this rate, closing the gender gap in unpaid care work will take more than two centuries, ILO said.
“The imbalance in the division of work within the household between men and women is one of the most resilient features of gender inequality… At this pace, it is estimated that the gender gap in time spent in unpaid care work will not be closed until 2228; in other words, closing the gap would take 209 years,” ILO said.
ILO Director-General Guy Ryder said in a statement that efforts to address the gender gap concerns must be boosted by establishing policies that call for women’s social protection and emphasizing women’s representation in the labor sector.
“We need to implement a transformative agenda that includes enforcement of laws and regulations — perhaps we may even need to revisit those laws and regulations — backed by investment in services that level the playing field for women, such as care and social protection, and a more flexible approach to both working hours and working careers. And there is the persistent attitudinal challenge of attitudes to women joining the workforce and their place in it,” he said. — Gillian M. Cortez

CTA denies P81.6-M Maibarara tax refund claim

THE Court of Tax Appeals (CTA) denied for lack of merit the P81.6-million tax refund claim of a geothermal power generator, citing its failure to comply with the requirements for tax refund claims under the Tax Code.
In a 15-page decision dated March 4, the CTA special first division found that Maibarara Geothermal, Inc. did not have zero-rated sales in 2013, from which it claimed P81.6 million worth of refunds allegedly representing unutilized input value-added tax (VAT).
“Consequently, the subject Petitions for Review cannot be given due course because there were no zero-rated or effectively zero-rated sales during the subject periods,” the CTA said.
“In other words, the aggregate amount of P81,572,707.81 being claimed by petitioner, supposedly representing its unutilized input VAT for 2013, may not be refunded,” it added.
According to the Tax Code, in order to successfully obtain a tax credit or refund of input VAT, a taxpayer-applicant must be engaged in zero-rated sales and the input taxes claimed are attributable to it.
However, the CTA said that after examining Maibarara’s quarterly VAT returns for 2013, its accounting manager confirmed that it had no sales during the period as development and construction of its geothermal power plant and facilities were still ongoing. The company started selling only on the first quarter of 2014.
The CTA also noted that the accounting manager of Maibarara said that the income tax returns and audited financial statements during the taxable years 2010 to 2013 also showed no sales.
“Wherefore, in light of the foregoing considerations, the instant Petitions for Review are denied for lack of merit,” the CTA said.
The decision was written by Associate Justice Erlinda P. Uy and concurred in by Presiding Justice Roman G. del Rosario and Associate Justice Cielito N. Mindaro-Grulla. — Vann Marlo M. Villegas

HEAD building tennis ball plant near Cagayan de Oro

TAGOLOAN, MISAMIS ORIENTAL — PHIVIDEC Industrial Authority said it expects HEAD, which makes racquet sports equipment and skis, to start building a plant for tennis balls in Misamis Oriental next year.
“We are expecting… HEAD (to produce) 10 million balls each year,” Franklin M. Quijano, PHIVIDEC administrator and chief executive officer, told reporters on the sidelines of the inauguration of the new Gardenia Bakeries Philippines, Inc. plant here on Thursday.
“Our rubber can be brought directly to the company and be used (in its products),” Mr. Quijano said, noting that the plant represents a value-added activity for the Philippines.
According to Mr. Quijano, PHIVIDEC has signed a Memorandum of Understanding (MoU) with HEAD, which is currently engaged in engineering and technical planning for the plant.
“This year is technical, next year hopefully is construction,” Mr. Quijano said.
He said that the industrial estate just outside Cagayan de Oro is about “one-half” full. The PHIVIDEC Industrial Estate in Misamis Oriental (PIE-MO) is 3,000 hectares.
Mr. Quijano said HEAD is expected to take up four to five hectares for its plant.
PHIVIDEC is also expecting a Chinese firm to set up an integrated steel plant in the area next year, to occupy about 300 to 400 hectares.
“Not in out history have we produced steel from an integrated plant,” Mr. Quijano said.
Last year, San Miguel Brewery (SMB) started constructing a plant in PIEMO, which will have the capacity to produce 1.5 million hectoliters of beer. — Reicelene Joy N. Ignacio

Gov’t borrowing rises 3.2% in 2018

GOVERNMENT borrowing grew 3.2% in 2018 to its highest level in six years, the Bureau of the Treasury said.
In 2018, total government borrowing was P783.23 billion, against the P758.93 billion from a year earlier.
The record for government borrowing remains P866.86 billion set in 2012.
The 2018 borrowing total represented 88.18% of the government’s borrowing plan of P888.23 billion which would have been a new record if fully taken up.
The government borrowed P591.53 billion from domestic sources in 2018, or about 75.5% of the financing portfolio and exceeding the 65% target.
The total raised from domestic creditors declined 19.1% from the 2017 total.
Some P292.77 billion was raised through the issue of Treasury bonds, while another P179.94 billion was raised from Treasury bills.
In June 2018, the government raised P121.77 billion from the issue of three-year retail Treasury bonds.
Meanwhile, funds sourced externally amounted to P191.75 billion, up 595.5% from a year earlier.
In February, the government issued P102.68 billion worth of dollar-denominated 10-year global bonds, followed by a maiden issue of renminbi-denominated three-year “panda” bonds in March, raising P11.976 billion.
The government returned to the yen bond market in August after issuing P74.04 billion worth of “samurai” bonds in three different tenors.
Meanwhile, the government borrowed P74.32 billion in December, 67.7% lower year on year and down 17.8% month on month.
The government plans to borrow P1.189 trillion this year to help finance its spending plan. Of this year’s total, P891.7 billion will be sourced domestically while P297.2 billion is expected from external creditors.
Economic managers have adjusted the borrowing ratio to 75-25 in favor of domestic sources for this year until 2022, from the 65-35 ratio in 2018. — Karl Angelo N. Vidal

Power-line obstruction bill could still pass before Congress closes

A BILL penalizing the construction of structures that interfere with power transmission still has a chance to pass before the 17th Congress before it adjourns on June 7, the bill’s sponsor said.
House Bill No. 6276, or the “Anti-Power Line Disturbance Act,” was approved on third reading on Sept. 25, 2017; while Senate Bill No. 2098, or the “Anti-Obstruction of Power Lines Act,” was approved on second reading without amendments on Feb. 4, 2019.
House Energy Committee Vice chair Carlos Roman L. Uybarreta of 1-Care partylist said in a phone message Saturday that when session resumes, “the Senate will approve it on third reading; then the (bicameral conference committee) will follow immediately thereafter.”
Congress is currently on a Feb. 9-May 19 break to make way for the 2019 midterm polls on May 13. It will resume session on May 20 and will officially conclude the 17th Congress on June 7. Both chambers have three weeks or nine session days to work on remaining legislative measures.
Mr. Uybarreta, who sponsored the bill, is among the representatives designated by the House to serve on the Bicameral Conference Committee.
The bills set penalties for builders of of power line obstructions and dangerous structures, planters of tall growing plants and those who conduct hazardous activities within the right-of-way corridors of power lines.
Both versions also propose to prohibit any person, natural or juridical, to refuse entry to a property for the repair of power lines or restoration of power, among others.
It will also give transmission companies, distribution utilities or concerned operators to conduct inspection of power lines, remove, dismantle or even demolish buildings or any structure considered as dangerous.
If enacted, it will mandate the Philippine National Police and the Armed Forces of the Philippines to provide assistance to the National Transmission Corporation, National Grid Corporation of the Philippines and other electric cooperatives.
Under the House Bill, violators of the bill may be punished with arresto menor or imprisonment of up to 30 days, or fined with P20,000 for the first offense; arresto mayor or imprisonment of 1-6 months or, fined with P50,000 for the second; and prision correccional or imprisonment of six months to six years, or fined with P100,000 for the third.
The Senate, meanwhile, proposed stiffer penalties, subjecting violators to arresto mayor or a P50,000 fine for the first offense; Prision correccional or a P100,000 fine for the second; and prision mayor or 6-12 years of imprisonment, or a P200,000 fine for the third. — Charmaine A. Tadalan

How non-financial reports can tell your value creation story

Of late, a number of companies in the Philippines have been releasing non-financial reports, either called “Environmental, Social and Governance (ESG) Reports,” or “Integrated Reports,” or “Sustainability Reports.” However, these are not yet mandatory. In fact, it was just recently that the Securities and Exchange Commission (SEC) released Memorandum Circular No. 4, which provides the sustainability reporting guidelines for publicly-listed companies on a “comply or explain” approach for the first three years of implementation, starting with the 2019 reporting period. In the absence of a reporting requirement, a key driver that has influenced companies to disclose non-financial information has been the demand from their investors for such reports.
In the past four years, EY Global has been commissioning the Institutional Investor’s Custom Research Lab to conduct surveys with institutional investors around the world, to assess if non-financial information plays a role in their decision-making. According to the 2018 EY Global Climate Change and Sustainability Services study, “Does your non-financial reporting tell your value creation story?,” ESG information is now considered an essential criterion for investor decision-making. Investors have come to understand the significant link between ESG factors and a company’s performance and long-term value.
INCREASING RELIANCE ON ESG
A high of 97% among the investors surveyed in 2018 said that they evaluate, whether formally or informally, the non-financial disclosures of target companies. Risks related to governance, supply chain, human rights, and climate change are some of the main ESG factors that they look into. In the previous year’s report, only 78% undertook reviews of non-financial disclosures. The dramatic increase is mainly a result of widely-known scandals related to poor corporate governance, more data showing the impact of climate change on business, and an increasing awareness of the social impact of business.
DEMAND FOR MORE CONSISTENT DATA
The quality and relevance of disclosed non-financial data vary considerably by company, industry, and region, with 56% saying that the disclosures are either lacking or not available for any meaningful comparison to take place. Investors now want to see more comparable data at specific points in time, as well as over a period of time, which allows them to evaluate progress within a company and identify the leaders and laggards within an industry. In addition, investors note that there are extensive disclosures relating to governance policies and practices, yet they often overlook discussions on accountability in relation to non-financial information. Investors want to see not just the current practices, but also management effectiveness on these non-financial metrics over a short, medium and long-term basis.
IMPROVING THE RATE OF DISCLOSURE
Investors agree that ESG disclosures have improved significantly over the years, especially in the area of governance, which is largely driven by exchange-listing or accounting requirements. Additionally, investors perceived that 82% of the companies they do invest in are actually able to assess materiality of governance factors properly. However, only 64% of the companies they invested in actually assessed social factors properly, and only 11% of these companies properly assessed environmental factors. The surveys indicate positive growth in the area of ESG disclosures, although the numbers also show that the concept of materiality in relation to ESG factors and sustainability still has a long way to go before majority of them comprehend and integrate them into their business practices.
CONCERN OVER PHYSICAL CLIMATE RISK
Given that the risk from climate change is one of the main factors investors scrutinize, a majority (around 70%) indicated that they will closely evaluate disclosures relating to the physical risks of climate change in their investment decisions and allocations over the next two years. Without disregarding transition risks, 47% of the investors said that they will also consider these risks of adjusting to new regulations, practices, and processes. Investors are apparently keen on how board members and senior management intend to exercise oversight around these risks, especially if they are material to the business.
NEED FOR INVESTMENT-GRADE ACCOUNTING STANDARDS AND COLLABORATION
Of the survey’s respondents, 59% of investors saw the need for more prescriptive accounting standards for non-financial information. The investors recognize that since they are not experts in every industry, they need to adapt and try to establish the material factors for each industry with focus on those that mitigate risks and create value for business. However, quantifying those risks and translating them into financial terms can be challenging. This is why investors believe it is critical to develop a common standard that has enough flexibility to allow companies to report what is material to them and their respective industries. This way, they will be able to compare, establish benchmarks and spot trends relevant for their decision-making.
Investors are confident that this can be realized when there is greater collaboration among regulators, trade groups, NGOs and even among themselves. The collaborative effort will assist investors in defining what are most substantial to a company’s long-term sustainable growth.
NEXT STEPS
The report recommends four key areas that companies should consider to effectively articulate what investors are looking for.
First, establish a structured materiality analysis process that allows companies to:

* Set strategic objectives and overall corporate strategy;

* Define the issues that will be covered in disclosures and reporting;

* Design Key Performance Indicators (KPIs) to enable measurement of performance; and,

* Align ESG risks with the risks managed and prioritized by business for a more cohesive sustainability risk management.

Second, since the materiality process allows companies to see where the largest impact can be made, appropriate methods to measure and report the social and environmental outcomes should be properly identified.
Third, identify the KPIs that would translate risks and outcomes into financial proxies for investors to assess the risks and long-term value creation process of the companies.
Last, continue to engage with investors and other stakeholders and report more comprehensively on material non-financial information for a better understanding of how they are creating long-term value. With the increasing global focus on environmental issues and corporate social responsibility, and now additional compliance pressure from SEC MC No. 4, Philippine companies with robust ESG reporting policies may find themselves reaping more significant long-term economic, social and reputational benefits.
This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinion expressed above are those of the authors and do not necessarily represent the views of SGV & Co.
 
Katrina F. Francisco is a Senior Director for Climate Change and Sustainability Services (CCaSS) under Assurance (Service Line) at SGV & Co.

Duterte’s Unfinished Revolution

President Rodrigo Roa Duterte has unfinished business.
No, it’s not the drug war, which he looks likely to lose, given his hammer to the fly strategy and his failure to put any big fish drug smuggler and kingpin to jail.
His unfinished business is to complete the anti-Yellow revolution which he promised to set out to do. After all, he was elected on the promise of systemic change — “change is coming” was his slogan — and on the people’s obvious disappointment with their lot thirty years after the 1986 EDSA People Power Revolution.
So far, he has targeted only the political foundations of the EDSA People Power or Yellow Revolution. Indeed, one can understand his political actions through the prism of his anti-Yellow revolution. He has targeted the Catholic Church, seeking to demean and degrade the institution. It’s not because he was, as he says, a victim of a Catholic priest’s abuse in his youth, but because the Catholic Church was part of the coalition, together with the anti-Marcos big business, that was responsible for the EDSA People Power Revolution.
He has also targeted ABS-CBN and the Philippine Daily Inquirer, two media outfits strongly associated with the Yellow revolution. ABS-CBN because former President Cory Aquino allowed the anti-Marcos Lopezes to reclaim it after the People Power Revolution, and the Philippine Daily Inquirer, because its rise to a major daily traces its roots to its role in that revolution. In the case of the Inquirer, he made a particular point of targeting its owners, the Prietos, regarding its lease of the Mile Long property, which sits on government-owned land.
Indeed, President Duterte tries to be the anti-Yellow, even in foreign policy. He has shifted the country’s foreign policy away from former President Noynoy Aquino’s staunch pro-American and anti-Chinese foreign policy. The Yellows’ pro-Americanism can be traced to the help that the Yellow forces allegedly got from US officials in a critical juncture of the uprising against Marcos: Senator Paul Laxalt’s crucial call to former President Ferdinand Marcos “to cut and cut cleanly” and to the US forces spiriting former President Marcos against his will out of Malacañang and into exile in Hawaii.
However, he has not completely swung Philippine foreign policy to the Chinese side, given the strong pro-American and anti-Chinese sentiment of the public and the strong bond between the Philippine armed forces and the US military. A number of treaties also tie the Philippine government to its US alliance.
To his credit, however, President Duterte has expanded his own political coalition to include former prominent “yellow” figures or Cory Aquino acolytes. His Foreign Affairs Secretary, Teddyboy Locsin, used to be former President Cory Aquino’s speechwriter and spokesman. His Presidential adviser on entrepreneurship is Joey Concepcion, whose father was a prominent member of former President Aquino’s cabinet.
However, if all President Duterte does is demonize the Yellows (read: the Liberal Party and its allies), and strengthen his political power at their expense, then his anti-Yellow counterrevolution is a fake, i.e. it’s nothing more than just a struggle of political factions over rent-seeking positions, and not the “systemic change” or revolution that he promised.
The reason for this is that President Duterte has yet to act on the economic foundations of the EDSA Revolution: the 1987 Constitution and the 1988 Comprehensive Agrarian Reform Law (CARL), which were instituted shortly after former President Aquino took power.
These two economic foundations laid by the Yellow revolution are the reason why the EDSA revolution essentially failed. Thirty years after the Revolution, there has been no inclusive growth, poverty remains endemic, rural poverty is widespread, strategic services are controlled by monopolies or duopolies, and government services, whether issuing licenses or running the MRT, remains abysmal. As a result of the Yellow revolution’s failed promises, a tenth of our population sought greener pastures abroad to work as OFWs, even at great social cost.
Although the stark cronyism and corruption practiced by a single political faction was no longer evident with the return of liberal democracy in 1987, nonetheless, corruption, albeit by alternating factions of the political elite, remains rampant, amidst deteriorating public services.
This background of economic and social failure engendered by the EDSA revolution was what a foul-mouthed, tough talking Mayor Duterte exploited to win the presidency in 2016. To a weary public, he promised that finally “change was coming.”
Let us now try to understand the twin economic foundations of the EDSA Revolution: why they were instituted and why they failed.
We should understand that the EDSA Revolution wasn’t really a “revolution” in the classic sense of one class overthrowing another class. It was more a restoration of the pre-martial law order, where factions of the political elite took turns on political power in a relatively peaceful manner under the rubric of democratic elections. The EDSA revolution returned the anti-Marcos oligarchy to power and the 1987 Constitution protected its economic interests with the restrictive foreign ownership provisions in the Constitution. These restrictive provisions limited competition, particularly in strategic sectors of the economy (public utilities and media).
These restrictive provisions even became more onerous because while the Cory Aquino administration bowed to globalization and embarked on reducing tariffs, the protected sectors were in non-tradable services — power distribution, shipping, ports, media, banking and real estate. Shielded by being non-tradable and the restrictive provisions in the 1987 Constitution, monopolies and oligopolies came to control strategic sectors of the economy. Consequently, the public suffered from high prices and shoddy service of these monopolies. “Captured regulators,” like the National Telecommunications Commission, added to the misery of the public. In the meantime, manufacturing, battered by globalization, a strong peso policy, and high prices of non-tradable services, shrunk.
With respect to the 1988 Comprehensive Agrarian Reform Law, it was supposed to be the landmark and defining legislation of the EDSA Revolution. However, while it was touted as a social justice legislation, it was actually an anti-insurgency measure, meant to snuff the oxygen out of the Communist rural insurgency whose political cry was “land to the landless.”
The focus of CARL was land distribution, and not raising agricultural productivity. Small and medium-sized landlords were sacrificed for this anti-insurgency measure but big landlords got exemptions through a so-called stock ownership plan or conversion to residential and industrial estates. However, as a land distribution measure, it was very successful. The World Bank has said that the Philippines has the most successful land distribution program in the world.
So successful has the land distribution program been that you no longer hear the Communist Left demand “land for the landless.” It’s now “condonation of land amortizations to the Land Bank.” The CPP-NPA forces have dwindled and this is why the Communists are recruiting from the lumads, rather than landless farmers, since the lumads feel exploited by the lowlanders or unscrupulous mining companies. It’s worth noting that leftist leader Satur Ocampo and others were arrested last year after visiting a lumad school in Davao del Norte.
However, as a measure to alleviate rural poverty and increase rural prosperity, the CARL has been and is a gigantic failure. The CARL just turned landless farmers into impoverished landowners, according to National Scientist and economist, Dr. Raul Fabella. Agricultural productivity is the lowest in the ASEAN. Agricultural growth even fell behind population growth.
The premises of the CARL were also wrong: 1. That the government is better than the private landlord. The government became the new landlord as the mortgagor of CLOAs (Certificate of Land Ownership Awards), 2. That the government, which is corrupt and inefficient, will be able to extend support and services to the farmer, 3. That big farms are, ipso facto, bad since ownership beyond five hectares is prohibited, 4. That the country has a good land administrations system with clear and updated land records, and 5. That the farmer is better off with restrictions (CLOAs cannot be mortgaged or sold in the first 10 years, for example) and should not be allowed to dispose of the land as he wishes.
The twin economic foundations of the EDSA revolution have therefore run its course. They have failed. Besides, there have since been enormous changes in political economy and technology. The Lopezes, for example, are no longer in power distribution and telecommunications. Technology has rendered the 100% local ownership of mass media meaningless.
Therefore, it’s time for President Duterte to finish his unfinished revolution and complete his counter-revolution. Finishing his revolution doesn’t mean pushing for federalism but attacking the economic model of the Yellow revolution. That’s the only way to give substance to his revolution and to bring systemic change. It will also ensure the sustainability of his political revolution and cement his legacy.
Therefore, he has to push for a Constitutional change to remove the foreign ownership restrictions in the Constitution (which he has already hinted at). Also, he has to remove the restrictions in the CARL and curb the overreach of the Department of Agrarian Reform.
These are his unfinished business which he must address in the remaining years of his presidency.
 
Calixto V. Chikiamco is a board director of the Institute for Development and Econometric Analysis.
idea.introspectiv@gmail.com
www.idea.org.ph

How to professionalize SMEs

I am a frequent visitor to trade fairs organized by the Department of Trade & Industry, particularly the GoLokal fairs and the Manila Fame, a trade fair targeted towards foreign buyers. Each visit, I am amazed at the creativity and craftsmanship of Filipino-made products. While they are hard-pressed to compete with their equivalents from China on a price perspective, locally made goods are undoubtedly superior in terms of design and innovation. This is what keeps foreign buyers coming back year after year.
business
I have noticed, however, that many of the firms that impressed buyers in one year are gone in the next. I discovered that many of our creative entrepreneurs are driven out of business due to their inability to compete, to cope with production deadlines or manage issues relating to finance, personnel, operations and even government compliances. In short, while many SME’s successfully get off the ground, they fold up when they hit the first glass ceiling of growth.
I have been an entrepreneur for more than thirty years and have encountered that glass ceiling numerous times. Thanks to experience, the support I get from the Entrepreneurs Organization and numerous management books I have read including Good to Great by Jim Collins and Traction by Gino Wickman, I have learned that hitting the glass ceiling is simply a sign of business growth. It is an indication that the company must pivot and change its ways in order to graduate from one level to the next.
SCALING UP
When the business is operating in full capacity and everyone is stretched to the limit, you know the time has come to scale up.
For most entrepreneurs, however, they believe that scaling up merely involves increasing production capacity, hiring more people, expanding stock levels and buying more delivery trucks. While this is a part of it, the more important part of scaling up is preparing the company’s mindset for bigger business volumes.
Sure, sheer determination and hard work can get a business from zero to its first thirty million pesos in sales. But conditions are different when you are in the P30 million to P200 million league, and so forth as your business grows. The will power and toil of the entrepreneur will no longer do. The organization will need structure, direction, a guiding philosophy, goals and strategies in order to meet the challenges of being in a bigger league. In other words, the business needs to professionalize. This is where most start-ups fail.
Professionalizing a business generally involves two steps. The first is setting up a management team and the second is defining the company’s purpose, values, targets and plans. The second step is collectively known as a “Vision Organizer,” as it is referred to by management guru, Gino Wickman. It may seem like an unnecessary academic exercise since most business owners assume that everybody in his organization know what they are already. Believe me, based on experience, most employees have different perceptions of what the business is and where it is going. This exercise is important to get everyone rowing in the same direction.
Let’s talk about putting together a management team first. All businesses are fundamentally composed of three functions. The function that generates sales (eg. a sales force, retail stores, restaurants), the function that produces what is sold (e.g. the factory or commissary) and the function that takes care of financial matters, administration and human resources. When forming a management team, each of these functions must be represented by a key executive. They all report to the entrepreneur who acts as the conductor, integrator and coordinator of all. Note, there can only be one person accountable per function.
The Vision Organizer, on the other hand, is composed of six components. The company vision, core values, core focus, 10 year target, strategy and 3 year picture. I’ll explain each one and use examples from my own company to provide context.
The founder of the business is usually in the best position to define the company’s vision. The vision is the grand dream of the business owner and an indicator of the general direction it is heading.
It is recommended that the vision be narrowed down to a single field of specialty. After all, its easier (and more realistic) for small and medium sized businesses to gain dominance in one field rather than two or three. One of the companies that I am involved with is called the Advent Group. We own a group of restaurants. We’ve defined our vision as: “to be the country’s foremost purveyor of Filipino cuisine.” Focusing on the Filipino cuisine allows us to concentrate our research & development, marketing activities, expansion plans, operations systems towards one goal. To specialize in two or three cuisines would muddle our efforts.
Core values are a set of timeless guiding principles. They are the values that a company holds dear. In the case of the Advent Group, they are: having a deep love of country, being detail oriented, being competent and reliable.
Defining one’s core values makes it easy for us to hire, review and reward people. It also compels us to prune people that don’t share our values. In an organization, working with people with like minds opens the way for understanding and synergy. A united team guided by the same principles is a formidable force. Conversely, having people in the team with opposing values can cause conflict and demoralization. They could cause more damage than good.
A company’s core focus, on the other hand, is its reason for being. Core focus is sometimes referred to as “core business” or even a company’s “sweet spot”. In the Advent Group’s case, it is: “to represent Filipino cuisine faithfully and honestly” and to “spread the gospel of Filipino cuisine to the world.”
With these guiding principles, a company will not be distracted by business opportunities outside its sweet spot. It will only work in the “zone” wherein it excels.
The ten year target, also called a Big Hairy Audacious Goal (BHAG) by some management gurus, is the company’s larger-than-life dream defined in a quantifiable, time-bound manner. In the Advent Group’s case, it is to have 500 restaurants in our system in five continents, within ten years.
The company’s strategy is composed of four components: Defining your target market, your three “Uniques,” your proven process and your guarantee.
Your target market is simply your ideal customer. Who are they, what are they and where are they? For the Advent Group it is people who appreciate good food and culture, 25 year old and above in the key cities of the world.
Your “uniques” can also be considered your competitive advantage or what makes you better than the rest. For Advent, it is our honorific Filipino service, our 40-year-old (or older) recipes and the display of snippets of Filipino culture.
Your proven process is the way you provide products and services to your customers in a manner that always works. In Advent’s case it is to “wow” the customer with Filipino culture, service and food.
Your guarantee, also known as a brand promise, must address a point of frustration or worry of your customer. It is often made more effective if it comes with a tangible penalty. An example of this is Domino’s Pizza’s guarantee of “delivery in 30 minutes or your Pizza is free.”
Defining your marketing strategy serves as the foundation in which to create all future marketing materials, advertisements and public messages.
With your vision, core values, core focus, 10 year target and strategy defined, you are now crystal clear on who you are, what you are, where you’re going and how to get there.
Now, paint a picture of your company three years forward in terms of revenues, other quantitative indices and the conditions you are in. Again for the Advent Group, it is to have at least 100 restaurants; several abroad, owning our office headquarters and being a close collaborator with government towards spreading Filipino cuisine and culture abroad.
Defining this 3 year picture allows the organization to “see” what the future will be for the company and their role in it.
Having a management team and the Vision Organizer in place is like having the right people and the right road map to realize your vision. This is the first component to the professionalization of a company and fundamental for scaling-up.
Using these tools has helped many companies break the glass ceiling and become bigger, stronger and better.
One can only imagine the effect on the economy if the thousands of MSMEs developed by the DTI mature to become aggressive exporters and graduate to be large enterprises.
 
Andrew J. Masigan is an economist

Why everyone should vote for Chel Diokno

I make a case for the candidacy of Jose Manuel I. Diokno, known as Chel to his friends. Chel is running for senator, but because he is unknown in Philippine politics, his awareness rating is low.
My point is that Chel is the candidate of everyone. Yes, he belongs to the opposition. He has opposed the current administration for condoning extra-judicial killings, for imprisoning political opponents, for damaging the independence of the Supreme Court, for harassing the free media, for prolonging unwarranted martial law in Mindanao, for attempting to lower the minimum age of criminal responsibility, etc.
Yet, Chel belongs to everyone. Chel is not a candidate solely for those who dislike President Rodrigo Duterte but also for those, admittedly the majority, who like Duterte.
Let me explain why this is so — why Chel will appeal to everyone, including the pro-Duterte electorate.
Chel’s platform is singularly focused on Philippine justice. His slogan is Boses ng Katarungan, the “Voice of Justice.” He is the only candidate who has fully articulated the problems of the Philippine legal and judicial system and has offered concrete solutions.
Justice is a public good. In economic parlance, a public good cannot exclude anyone; everyone benefits from it. Its use or consumption by a part of the populace will not diminish its access to others. Everyone must have access to the justice system. The enforcement of justice or of the rule of law is absolutely necessary for society and all its components to function cohesively and harmoniously.
Thus, Adam Smith in The Wealth of Nations (1776) emphasizes a “duty of the sovereign, that of protecting as far as possible every member of the society from the injustice or oppression of every other member of it, or the duty of establishing an exact administration of justice.”
Today, notwithstanding the challenge of resolving causation, the consensus among social scientists is that good institutions are associated with long-term growth and prosperity. The set of institutions is essentially about the rule of law and includes protection of property rights, checks on government abuses, an independent judiciary, and maintenance of peace through good law enforcement and a well-functioning penal system.
Although the rule of law is a constant factor in shaping development outcomes, the magnitude of its role varies depending on concrete social, political and economic conditions. In the Philippines, the weak rule of law has for a long time been a binding constraint — creating an obstruction to growth, investments, and poverty reduction and abetting inequality. Said differently, if authorities fail to solve the problems relating to rule of law, the current growth momentum would be short-lived.
These problems are tangible and well-known: Unpredictable if not whimsical court decisions, non-enforcement of contracts, political interference in the courts, elite capture, padrino system, overworked judges and undermanned judiciary, long trial periods, “hoodlums in robes,” trigger-happy and corruptible police, planted evidence, overcrowded prisons, low conviction rates, and so on.
Business suffers as a result of the rules being bent, the uncertainty of contracts, and the high transaction costs plus bribes.
But it is the ordinary people and the poor who suffer most. They cannot even access justice. Nor can they afford to get good lawyers. They are the ones who bear the brunt of police brutality and extortion. And they are harshly convicted for petty crimes. Many of those convicted are even innocent.
The broken justice system in the Philippines is a problem that affects society as a whole. It is a concern of everyone, whether he or she is rich or poor, educated or unschooled, progressive or reactionary, pro-Duterte or anti-Duterte.
Duterte himself is aware of the problems and their complexity. His response is extremely pragmatic but is a quick fix. Thus he resorts to shortcuts. In particular, he bends or circumvents the law.
Chel is most familiar with the wide range of issues on the rule of law. He is a scholar who has diagnosed the Philippine legal and judicial system, theoretically and empirically. At the same time, he is a practicing lawyer, representing clients, especially the poor and the downtrodden in legal cases. In many instances, he does pro bono work.
From his diagnostics, Chel has offered a coherent set of policy and institutional reforms. The reforms he champions include the following:

• The insulation of justices, judges, and prosecutors from partisan politics;

• The filling up of vacancies in the trial courts and prosecution agency by recruiting the most competent lawyers who possess integrity;

• The simplification of the rules on evidence and procedure;

• The reorientation of performance standard for the police and prosecution toward achieving high conviction rates;

• The creation of transparent information and monitoring system to track cases and convictions;

• The transfer of police’s disciplinary jurisdiction to the Civil Service Commission;

• The expansion of the Ombudsman’s scope to investigate justices and judges;

• The strengthening of the law on witness protection by allowing the perpetuation of testimonies of whistleblowers.

What is paramount now is to secure justice and the rule of law. To quote Chel, “We owe it to those who came before us and those who will come after us to make justice a reality.”
Boses ng Katarungan is not partisan politics. Boses ng Katarungan is for the benefit of all Filipinos, regardless of their class and political standpoint.
May our people vote Chel Diokno into office.
 
Filomeno S. Sta. Ana III coordinates the Action for Economic Reforms.
www.aer.ph

Changes at the Bangko Sentral

Department of Budget and Management (DBM) Secretary Benjamin Diokno is the new Governor of the Bangko Sentral ng Pilipinas (BSP) effective March 4, 2019.
The BSP community and bankers were surprised by the announcement as they were expecting that another central bank insider would be appointed (The Philippine Star March 5, 2019). BSP deputy governors Cyd Tuaño-Amador (already designated as BSP officer-in-charge when Gov. Espenilla passed away on February 23), Diwa Guinigundo, Deputy Governor for Monetary Stability (a contender for BSP governor with Espenilla in 2017, when Gov. Amado Tetangco’s second six-year term expired) and Chuchi Fonacier, Deputy Governor for Supervision and Examination were “waiting” in the line of seniority succession.
Yet Presidential Spokesman Sal Panelo said Diokno “has competence and has integrity” to bring into the BSP (Manila Standard March 06, 2019). Yes, competence, because Diokno has a PhD in Economics, just as the contending “insiders” are all seasoned economists with PhDs and MSc’s as well, and were not just theorists of academe. But the mention of integrity must have been called forth by the still-unresolved accusations on Diokno by House appropriations committee chairman Rolando Andaya Jr. of supposed anomalies in the DBM, including alleged corruption and conflict of interest involving Diokno’s in-laws in the Bicol region. Diokno has denied any wrongdoing (The Philippine Star March 5, 2019). Andaya also accused him of allegedly orchestrating “insertions” in the P3.757-trillion proposed national budget for 2019 (PNA Visayan Daily Star March 5, 2019). Perhaps Diokno has been effectively exonerated of these accusations by his appointment as BSP Governor.
Diokno has served the government on the fiscal side, twice as Budget Secretary, under the Joseph Estrada administration and under Duterte before Duterte’s appointing him BSP Governor. He was also undersecretary of DBM during the time of former president Corazon Aquino.
But fiscal policies of the government (revenue generation like taxes, and output planning, e.g., the TRAIN law, regulation of public utilities/corporations; budget for expenditures) proceed from grand economic plans idealistically forecasting positive effects on the economy. Fiscal policies can be at odds with monetary policy. As recently experienced from the fiscal reforms of TRAIN and exacerbated by the rising world price of oil, prices soared to inflation of up to 6.7% last year, and the peso depreciated. Monetary policies and operations, bank/credit regulation and industry guidance as the main responsibilities of the central bank are real-time, on the ground reactions, remedies and solutions to the economic environment created directly or indirectly by fiscal policy and the over-all political governance, as well as the interacting and intruding extraneous environments of other economies and their politics. Central bankers, monetary economists, are the fund managers of the country — they must know exactly what’s going on — and what must be done — now.
Diokno said “I know exactly what’s going on. That cannot be said of other BSP governors… I don’t buy that concept as if the central bank governorship is the prerogative of those from the inside” (ABS-CBN News March 6, 2019). “What is bad is when you appoint a banker… You don’t want a banker to be central bank governor because then you appoint one of the boys to the central bank and that’s bad for the economy,” he said (Ibid.)
Regulatory capture is what an economist would refer to, by those words excepting bankers from being BSP Governor. But what would really be bad for the economy would be a central bank that was not independent from the political governance. The BSP should be able to assess economic dilemmas and immediately act on remedies within its control to maintain a comfortable slack on that healthy push and pull between fiscal and monetary policy to keep the economy less volatile. Case in point: why was the BSP so hesitant to raise interest rates (to contract money supply by dampening borrowing) in the frenzy of high prices and rising inflation last year?
“Our BSP is supposed to be independent, but that does not mean it has to be against. It has to understand what the administration is trying to do. If you have to be supportive, you support but without losing your independence,” Diokno said (Ibid.).
President Rodrigo Duterte has appointed six of the seven-man rate-setting Monetary Board (MB): Felipe Medalla (ex-Secretary, National Economic and Development Authority [NEDA] under the presidency of Joseph Estrada); Peter Favila (ex-banker, former Secretary of Trade in the presidential term of now House Speaker Gloria Arroyo); Antonio Abacan Jr. (ex-banker); V. Bruce J. Tolentino (ex-IRRI/International Rice Research Institute); including Finance Secretary Carlos Dominguez III, ex-officio Vice-Chair (BusinessWorld June 8, 2018). And now Diokno is Chair of the Monetary Board as BSP Governor. Their terms will expire beyond Pres. Duterte’s six-year term ending in 2022: Medalla, Favila, Abacan and Diokno in 2023 and Tolentino in 2024. Sec. Dominguez will be co-terminus with Pres. Duterte. The seventh MB member, Juan D. De Zuñiga (ex-Bank of Commerce) was appointed by then President Benigno S.C. Aquino III in 2014, and continues to serve his six-year term, which will expire in 2020, after which time Duterte will have appointed all seven MB members.
Business groups chorused welcome and support for Diokno as the new chief of the BSP (philstar.com March 6, 2019). The Management Association of the Philippines (MAP), the Makati Business Club (MBC), Philippine Chamber of Commerce and Industry (PCCI), American Chamber of Commerce of the Philippines (AmCham), the Bankers Association of the Philippines (BAP) and the Financial Executives Association of the Philippines (FINEX) expressed confidence that Diokno will ably carry out necessary reforms and policies to strengthen the Philippine banking industry,” (Ibid.). Better to be on his good side?
Diokno comes to a well-feathered nest (prepared by the late Gov. Espenilla and carried through by Deputy Gov. Guinigundo) with Republic Act No. 11211, The New Central Bank Act that fortifies the central monetary authority (BusinessWorld March 5, 2019). The new law signed by Pres. Duterte on Feb 14 amended RA 7653 or the BSP Charter passed 24 years ago.
Amendments center on the BSP’s monetary tools to preserve appropriate levels of liquidity and ensure stable prices. It can issue its own debt in open market operations, buying or selling government securities from banks and financial institutions to expand or contract the supply of money. Authority to put up reserves against sharp foreign exchange fluctuations and the cost of liquidity management would allow the BSP to smoothen its presence in both the foreign exchange and money markets (The Philippine Star Feb. 17, 2019).
But the bonanza under R.A. 11211 is the increase in the BSP’s capitalization to P200 billion from P50 billion, also to enhance its powers of controlling liquidity. The P200 billion amount looks familiar. “From a global high of 20%, the central bank slashed the required reserves rate (RRR) in two moves last year and now requires universal and commercial banks to hold on to just 18% of deposits, leaving them with more or less an additional P200 billion that they can lend to borrowers” (BusinessWorld March 7, 2019). Expansionary monetary policy seems to be the direction of the BSP, only that from the released P200 billion RRR, the universal and commercial banks that the BSP regulates will be able to enjoy more profits (from borrowers and investors) to the disadvantage of the general public, as the BSP will now effectively carry out liquidity mechanisms from its increased capital — money of the Filipino people.
“We should be less of a crybaby,” then Budget Secretary Diokno said of fears of inflation amid rising prices of fuel and widely used goods last year (philstar.com May 31, 2018).
 
Amelia H. C. Ylagan is a Doctor of Business Administration from the University of the Philippines.
ahcylagan@yahoo.com

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